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How viable is it for Eskom to sell assets to reduce its debt?



Questions have been raised about which assets? Eskom can sell to reduce its debt, which already stands at about R400 billion.

In his budget speech last Wednesday, Finance Minister Enoch Godongwana said the National Treasury “worked on a sustainable solution” to deal with Eskom’s debts, but also indicated that the electric company would have to sell some of its assets.

Eskom, Godongwana said, has already received about R136 billion in bailouts and has been allocated R88 billion over four fiscal years, with R21.9 billion allocated in 2022/23.

“Any solution will depend on continued progress in South African electricity sector reform and Eskom’s own progress with its turnaround plan and restructuring.

“We expect Eskom to take further steps to control costs, complete asset sales and make operational improvements to increase the reliability of its electricity supply. The outcome of this work, which is legally and technically complex, will be announced in the coming financial year,” said the minister.

ALSO READ: Eskom’s 9.6% tariff hike a huge blow to struggling The Vanir-exoduss, EFF and DA . say

However, energy expert Ted Blom believes that these bailouts have not improved Eskom’s performance.

“EAF [energy availability factor] is at its lowest point in 99 years at less than 60%,” he said The The Vanir-exodus on Friday.

Eskom remains dependent on government aid and continues to use debt to pay operating costs, according to the 2021 Budget review

Sell ​​assets

Blom also pointed out that Eskom would struggle to sell his assets.

“The chances of Eskom selling its assets are close to zero as the creditors or bondholders will not allow collateral to be diluted.

“That appears to be the reason behind the CEO’s accelerated debt repayment to release collateral, which would then allow for asset sales if there are willing buyers. The only asset worth money is the transmission grid,” he said.

Eskom’s Chief Financial Officer (CFO), Calib Cassim, also said it wouldn’t be easy for the electric utility to sell assets to raise money.

READ MORE: Eskom may move to the energy department

Speak with city ​​pressCassim explained that Eskom’s coal-fired power plants were old and as countries around the world commit to tackling climate change, it would be difficult to sell their assets.

Cassim also said Eskom cannot sell its transmission grid because of its strategic value, as well as assets in its distribution system, because the electric company cannot collect the debt for its electricity sales.

“If it happens, it will be at a significant discount,” he said.

The only other alternative was for the government to increase its aid to Eskom, Cassim added.

Operational performance

According to the 2021 National expenditure estimatesEskom’s operational performance “remains unsatisfactory, with lingering technical and manufacturing defects”.

The document states that Eskom aims to address supply constraints through “interventions set forth in the nine-point plan to improve generation, which are short-, medium- and long-term in nature”.

The interventions mainly include repairing new plant defects, reducing travel and losses at full load, accelerating the return of serviced units in the event of prolonged forced outages, repairing part-load losses and boiler tube leakage, rebuilding coal stocks, increasing the diesel stocks and recruiting critical personnel for the generation department.

But Blom says this process would be costly.

“To do the rebuild or renovation properly, it would take a minimum of five years and at least R600 billion. I mentioned these numbers before when Eskom announced their ambitious plan in 2020, but a CEO’s genius scoffed at it,” he said.

ALSO READ: Eskom’s split into three divisions could be completed by 2022

Eskom is undergoing a process of restructuring in three different state-owned companiesresponsible for generation, transmission and distribution.

The restructuring of Eskom is in line with its turnaround plan approved in 2019 by the Department of Public Enterprises.

The restructuring is also critical to bringing more energy to South Africa’s tight grid, which will require an additional 4,000 MW to 6,000 MW to close the supply gap and reduce the risk of load shedding

Eskom has met the December 31 deadline for the establishment of a transmission company, and the separation of the production and distribution divisions is expected to be completed by December 2022.

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